03/21/2013

Making Changes to an Irrevocable Trust

In
the past, if a trustee wanted to alter an irrevocable trust, a costly legal
process was the only way. Now, "decanting" is becoming a popular
and easier way to do this.

Irrevocable trusts are powerful tools in the
estate planner’s tool belt. They have a life of their own (of sorts), running
like a well-oiled machine from the start. Unfortunately, the “irrevocable”
nature of your irrevocable trust can be its Achilles heel, too. What happens if
the original design of your irrevocable trust now runs contrary to your current
objectives?

Enter “decanting.”

A recent article in Barron’s explored this common dilemma in an article with a catchy
title: “How to Bust a Trust.”

The “irrevocability” of an irrevocable trust
makes changing the trust a very difficult practice under normal circumstances.
Normally, this is a good thing. Why have all of the time, effort, and money you
invested to plan your estate be undone? Accordingly, the traditional process
for changing the terms of an irrevocable trust has been rightfully onerous.

Unfortunately, it’s not entirely uncommon that
the machine needs some retooling, let alone re-lubricating. Perhaps the laws
have change significantly, and your original goals for your loved ones have
proven unworkable or even detrimental to them. In a worst case scenario, the
inheritance could become a curse rather than a blessing.

In short, to “decant” the trust is to work
around those harsh legal and people conditions, realigning the trust to conform
to the new environment. The decanting process involves pouring the assets from
one vessel to another – from one trust to a new form of the trust or an
entirely different trust. Like a fine wine, decanting breathes new life into
the assets once held in a trust that no longer suits its purposes.

This is not a do-it-yourself project, however. It
can prove to be complex rather quickly. In fact, at present, decanting is only
possible in 18 states. Consequently, the laws of your state will determine
whether the process is available, as it matters where your trust exists. If you have questions about decanting in your state, be sure to consult competent legal cousel.

For more on decanting and more obligatory wine
references, be sure to read the original article. This is information worthy of
your consideration whether you are establishing your family trust now, are a
trustee, or a beneficiary.